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Over the past several months, every time that Bitcoin has fallen and analysts opine that the benchmark cryptocurrency still has more to fall, these investors swoop in, setting up a floor for Bitcoin and a level of support.
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Against this backdrop, institutional investors who were reluctant to get in on the cryptocurrency bandwagon at its all-time-high are being opportunistic and buying on the low, accumulating over time and looking out for entry points.
“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”
– Warren Buffett
Bitcoin, at least in the investing world, may increasingly be a matter of “personal taste.”
With an increasing number of high-profile investors pouring into Bitcoin and cryptocurrencies – like billionaire hedge fund managers Paul Tudor Jones and Alan Howard, there appears to be a sufficiently large demographic that is more than happy to buy Bitcoin whenever prices fall – the hamburger lovers if you like, to extend Buffett’s analogy.
Over the past several months, every time that Bitcoin has fallen and analysts opine that the benchmark cryptocurrency still has more to fall, these investors swoop in, setting up a floor for Bitcoin and a level of support.
On the other hand, short-term Bitcoin traders are underwater as long as the cryptocurrency trades below US$47,000 and each time it comes close to that, they take losses and sell out, putting a cap on the upside – the investors who don’t like Bitcoin anymore even though it’s cheaper and just want to claw back their capital.
The phenomenon is a consequence of an understanding and knowledge gap with respect to Bitcoin, as well as pretty standard investor psychology – an ill-informed investor starts paying attention to Bitcoin as its price rises.
Fearful that the price will keep on rising, that investor then rushes in just as Bitcoin is peaking and prices start to fall.
Because said investor never bothered to learn about the asset class anyway, they panic, and the moment that they can make back their capital or a small loss, they sell.
The result has been that Bitcoin remains stuck rangebound – caught between the two forces of the uninformed and the unwavering.
Recent investors who likely bought Bitcoin at a high and are using any opportunity to sell, are being stirred by anxiety over central bank policy tightening as well as the Russian invasion of Ukraine, and see Bitcoin just like any other risk asset.
Whereas investors who bought Bitcoin a long time ago, who still see tremendous paper gains on their portfolios, don’t trade or sell it – they either understand the value proposition or they believe in the long-term value versus fiat currencies.
As a result, because so much of Bitcoin remains illiquid (most is just held), the little that is traded can result in significant price swings which don’t necessarily reflect its long-term fundamentals.
Against this backdrop, institutional investors who were reluctant to get in on the cryptocurrency bandwagon at its all-time-high are being opportunistic and buying on the low, accumulating over time and looking out for entry points.
